Comments on: Don’t invest in microfinance A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: AsifurRahman Thu, 14 Jan 2010 09:24:48 +0000 Investment of PE in MFIs is a must. Otherwise micro-finance industry would never be able to serve 4 billion people at BOP globally. There are number of instances where MFIs became sustainable in a reasonable time frame and started generating profit.

Now at the early days there might be some hick up. But does not justify the urge like “don’t make investment in MFI”.

By: Jessie Fri, 28 Aug 2009 07:58:23 +0000 Felix, interesting blog. I work in microfinance and agree with you that too much growth too fast is a risk with a number of MFIs. Nonetheless, there are many cases where external support, including loans and equity, are the only option for MFIs to work at all.
Grameen didn’t borrow from abroad because it isn’t allowed to; Bengladeshi law does not allow it. It was however permitted to collect savings locally, something which is not permitted in many coutnries. And since microfinance can be quite risky, in many cases I prefer to see the funds of international lenders be put to risk, rather than the savings of local people who have nothing to spare and no way of protecting themselves.

By: Edward Moore Fri, 28 Aug 2009 01:48:28 +0000 A very interesting blog entry, Felix. I’m in São Paulo at the moment researching my dissertation about the Microcredit industry here in Brazil. As you’ll no doubt be aware, the microcredit industry here, for a number of reasons, is massively underdeveloped despite a huge demand for funds from its sprawling informal sector. Microfinance loans are served mainly by public banks but everything I have read has, until now, convinced me that Brazilians’ demand for credit will only be satisfied with the assistance of the private sector. This will only happen, however, if the government reduces its participation substantially. What are your thoughts on this? There’s clearly not enough money in the public coffers to fulfill the demand for credit, so what is your solution if you believe private investment likely to cause a bubble?

Any ideas on avenues for Brazil-specific research much appreciated from anyone at all. My e-mail address is edward_dot_moore_at_gmail_dot_com.

By: ashley alfred Thu, 20 Aug 2009 09:59:36 +0000 There has also been much criticism of the high interest rates charged to borrowers. The real average portfolio yield cited by the a sample of 704 microfinance institutions that voluntarily submitted reports to the MicroBanking Bulletin in 2006 was 22.3% annually. However, annual rates charged to clients are higher, as they also include local inflation and the bad debt expenses of the microfinance institution. Microfinance institutions that charge more than 15% above their long-term operating costs should face penalties.

By: Nicole Mon, 17 Aug 2009 20:06:53 +0000 Felix, as someone in the microfinance field, I think this article is pretty misleading since you are oversimplifying several issues and the arguments seem circular.

(1) Foreign exchange risk is rarely borne by borrowers. And even in the instances where borrowers do take loans in USD (primarily in a handful of dollarized Latin American countries), if their country currency devalues there is generally upheaval in the domestic economy that is going to make it impossible to repay the loan, so borrowers will default and investors will lose their investment. This is generally fear since US investors can generally diversify their currency risk.

If this seems worrying, you should *want* microfinance banks to hedge currency exposure (which many do) with the help of orgs like Kiva. It is counterintuitive that you criticize such efforts.

By: Evan Fri, 14 Aug 2009 21:13:20 +0000 Here’s a link to the extensive blog post that Kiva did addressing this: -kiva-feature-currency-risk.html

Here’s what they decided to do:

1 – Kiva Field Partners will now have the choice to “opt-in” to this feature; they can choose to manage all Foreign Exchange Risk themselves, or – by opting into the Feature – pass on the risk of currency devaluation over 20% to Kiva Lenders.

2 – You can see which loans have opted into the Foreign Exchange feature on the business page on the right side of the page under “About the Loan” in a section called “Currency Risk,” which has three statuses:

* Covered – If the Field Partner has not opted-into currency risk sharing
* Possible – If the Field Partner has opted-into currency risk sharing
* N/A – If the Field Partner does not disburse funds in a local currency (if they disburse U.S. dollars).

3 – Once a Field Partner has opted into this feature, the Foreign Currency Risk will only be shared with Kiva Lenders for new loans. All loans which have already been added to the Kiva site – whether they have already been funded, whether they are still being funded or whether they are yet to receive funding – will not expose you to the risk of losing funds via currency losses. So, you always have the choice to lend to businesses that have a possibility of foreign currency devaluation over and above 20%.

By: Jeff Fri, 14 Aug 2009 17:41:55 +0000 This is where I give as an alternative to going the microfinance route. Though it only operates in the U.S. at this time, this orgs entirely different approach makes sense to me:

By: nic Fri, 14 Aug 2009 07:09:54 +0000 Could someone please explain how lending at usurious rates to the pooresof the poor is “doing good”.

This isn’t charity, it’s business and we should stop treating MF as if it’s anything else…

By: Jack Fri, 14 Aug 2009 06:03:13 +0000 You asshole this is a very misleading title. The problem lies with the investor only. When a grassroot MFI asks for funds these PE’s say they want only commercial MFI’s since governence and operationaly these MFI’s are not sustainable. Then how are you going to help grassroot MFI’s grow. How many investors are there who will invest in these kind of MFI’s. The socialy motivated Funders are too less in numbers and the funds they have also is very less when you compare the demand.

By: paul Fri, 14 Aug 2009 04:29:57 +0000 Hi Felix et al,

Appreciate the article and the thread.
Felix, one question – how do you propose to satisfy the need i.e. Assuming we accept CGAP’s estimate that the need for credit is c. $300bn and this is only c.15% satisfied, then we’re a few bucks short … how do you propose to fill the gap? It’s not going to come from savings or charity – well at least not within the next generation or two … any ideas? other than the e.g. Oikocredit “blended value” investment model?